Construction Law – Page 46 – Legal issues, news, and regulations concerning the construction industry

Reasonable Methods for Computing Damages are Actual Total Method and Jury Verdict Method

Jan 01 2007

Power Constructors, Inc. v. Taylor & Hintze, 960 P.2d 20 (Alaska 1998)

In this case, a contractor brought a legal malpractice action against its former law firm and several attorneys. The contractor’s case was a “trial-within-a-trial” approach, which required the contractor to demonstrate the merits of its underlying case (concerning a deficient powerline construction project) as part of its malpractice case. At trial, the jury returned a verdict for the contractor, and both parties appealed the damages award in the jury’s verdict.

Disfavored Total Cost Method of Calculating Damages May Be Used Only in Limited Circumstances

Jan 01 2007

Geolar, Inc. v. Gilbert/Commw. Inc. of Mich., 874 P.2d 937 (Alaska 1994)

In this case, a contractor sued an electric company for breach of contract against the company’s agent for tortious interference with contract. The contractor also sued the electric company for breach of contract, and calculated its damages based on direct costs, lost of efficiency costs, and delay costs. The trial court dismissed the contractor’s claim for intentional interference with contract, but the breach of contract claim went to trial, where a jury based an award of damages to the contractor on the contractor’s calculation.

Deductive Changes Should Affect Contract Price Equitably

Jan 01 2007

M.J. Paquet, Inc. v. N.J. Dep’t of Transportation, 794 A.2d 141, 171 N.J. 378 (2002)

In this case, a contractor submitted an unbalanced bid to the New Jersey Department of Transportation (“DOT”) for the rehabilitation of a bridge with the expense of painting over-estimated and other expenses underestimated. Following the award of the project, OSHA released new paint safety requirements that the contractor claimed significantly raised the price of the project. DOT decided that the increased price was too much and decided to excise the bridge painting from the contract. The contractor then filed suit claiming that DOT was not authorized to delete the painting from the contract and alternatively, that DOT could not subtract the entire amount attributed to painting in the initial unbalanced bid from the contract price. The Supreme Court concluded that while it was appropriate for the DOT to excise the painting component from the contract it was not proper to simply subtract the value of that item from the initial bid. Rather, the contractor must have an equitable adjustment to the contract price.

Economic Loss Rule Bars Recovery for Construction Defects that do not Cause Property Damage

Jan 01 2007

Aas v. Superior Court, 24 Cal. 4th 627 (2000)

In this case, a condominium homeowners association and condominium owner sued the developer, general contractor and subcontractors who participated in the construction of the condominiums. The plaintiffs alleged a variety of construction defects related to nearly all components and aspects of the construction, and sought repair costs and damages for diminution in value of their residences. The defendants sought a motion in limine to exclude evidence relating to alleged construction defects that did not cause property damage. The trial court granted the defendants’ motions as to the plaintiffs’ tort claims, and the court of appeal denied the plaintiffs’ subsequent petition for a writ of mandate.
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Functional Equivalent of Privity is Required in Negligent Misrepresentation Cases that Produce Only Economic Injury

Jan 01 2007

Ossining Union Free Sch. Dist. v. Anderson LaRocca Anderson, 73 N.Y.2d 417 (1989)

In Ossining, the Court of Appeals expanded on the holding in Credit Alliance and ruled that a school district, which contracted with an architect, could sue engineers hired by the architect for damages suffered as a result of the engineers’ negligence and malpractice. The issue addressed by the court was whether privity of contract is required in a negligent misrepresentation case that produces only economic injury. The court held that a cause of action for negligent misrepresentation which produces only economic injury requires that the underlying relationship between the parties be one of contract or the bond between them so close as to be the “functional equivalent of contractual privity.” The court laid out a three-prong test following the guidance of Credit Alliance: (i) that the design professional be aware that its reports are to be used for a particular purpose; (ii) that a known person rely on the reports in furtherance of that purpose; and (iii) that there be some conduct by the design professional linking it to the reliant person and evidencing its understanding of the reliance.

Use of Total Cost Method of Calculating Damages Fails to Prove Cause of Damages

Jan 01 2007

Conom Alaska v. Bell Lavalin, Inc., 842 P.2d 148 (Alaska 1992)

In this case, when a dispute arose regarding the schedule for completing construction, the subcontractor sued the general contractor for professional negligence and breach of contract. The trial court granted the contractor’s motion to dismiss the professional negligence claim because the subcontractor failed to adequately establish a basis for the jury to determine the amount of damages. The subcontractor appealed.

“No Damage for Delay” Clause Does Not Preclude Delay Damages Caused Solely by Owner’s Failure to Disclose Material Information Related to Potential Delays

Jan 01 2007

Howard Contracting, Inc. v. G.A. MacDonald Constr. Co., 71 Cal. App. 4th 38 (1999)

This case arose out of a public works contract relating to a construction project to rehabilitate the Venice Canals located in Los Angeles. The project was owned and designed by the City of Los Angeles, which awarded the general contract to G.A. MacDonald Construction Co., Inc. The contract between the City and MacDonald contained a limited “no damage for delay” clause, which stated that a contractor was entitled to an extension of time to complete work delayed by unforeseen events but was not entitled to collect damages attributable to the delay. The contract did provide an exception, however, which specifically provided for payment for unreasonable and unanticipated delays caused by the City. MacDonald subcontracted portions of the work to Howard Contracting and Soil Retention Systems (“SRS”).

Architect and Interior Designer Liable for Tortious Interference with Contract Where General Contractor was Terminated on Their Recommendation

Jan 01 2007

DiMaria Constr., Inc. v. Interarch, 799 A.2d 555, 351 N.J. Super 558 (N.J. Super. Ct. App. Div. 2001)

In this case, the general architect and interior designer on a construction project recommended that the owner terminate the general contractor. The owner, on this advice, terminated the contractor who subsequently filed suit against the architect and interior designer for tortious interference with contract. In analyzing the claims, the court looked at the four elements of the tort of interference with a business relation or contract: (1) a protected interest; (2) malice in the sense that the defendant interfered without justification; (3) a reasonable likelihood that the interference caused the loss of the prospective gain; and (4) resulting damages. The court found that the architect and interior designer were liable for tortious interference. The court also addressed whether they were acting as agents of the owner and therefore escaped liability. The court found that question to be a factual issue that was implicitly answered in the affirmative in the jury’s finding of liability.

Notwithstanding “No Damage for Delay” Clause, Delay Damages May be Recovered in Certain Circumstances

Jan 01 2007

Corinno Civetta Constr. Corp. v. City of New York, 67 N.Y.2d 297 (1986)

In Corinno Civetta, the Court of Appeals reaffirmed that generally, “no damage for delay” clauses, which bar a contractor from recovering damages for delay in the performance of a contract, are valid and enforceable. However, even with such a clause, damages may be recovered for: (i) delays caused by the contractee’s bad faith or willful, malicious, or grossly negligent conduct; (ii) uncontemplated delays; (iii) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractee; and (iv) delays resulting from the contractee’s breach of a fundamental obligation of the contract.

Professionals Can Be Liable to Non-Contracting Parties if Their Relationship Approximates Privity

Jan 01 2007

Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536 (1985)

In Credit Alliance, the Court of Appeals held that accountants could be liable to noncontractual parties if the relationship of the parties approached that of privity. Specifically, the court held that an accountant could be liable, absent privity of contract, to a party who relies to his detriment on a negligently prepared financial report if (i) the accountant was aware that the financial reports were to be used for a particular purpose, (ii) in the furtherance of which a known party was intended to rely, and (iii) there must have been some conduct on the part of the accountant linking him to that party which evinces his understanding of that parties’ reliance.